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Volatility Spillover from Carbon Prices to Stock Prices: Evidence from China’s Carbon Emission Trading Markets

Author

Listed:
  • Jinwang Ma

    (College of Business and Public Management, Wenzhou-Kean University, Wenzhou 325060, China)

  • Jingran Feng

    (College of Business and Public Management, Wenzhou-Kean University, Wenzhou 325060, China)

  • Jun Chen

    (College of Business and Public Management, Wenzhou-Kean University, Wenzhou 325060, China)

  • Jianing Zhang

    (College of Business and Public Management, Wenzhou-Kean University, Wenzhou 325060, China
    Quantitative Finance Research Institute, Wenzhou-Kean University, Wenzhou 325060, China)

Abstract

The carbon emission trading markets represent an emerging domain within China. The primary objective of this study is to explore whether carbon price volatility influences stock market volatility among companies subject to these emission trading regulations. Employing daily returns data from 293 publicly traded companies regulated by these emission trading markets, this study encompasses the national carbon market and eight pilot regional carbon markets spanning from August 2013 to October 2023. The results demonstrate that volatility in regional carbon prices positively impacts the stock volatility of companies in the corresponding emission trading region, indicating a volatility spillover effect. Moreover, this spillover effect is more pronounced in sectors marked by lesser carbon intensity than those with greater carbon intensity. The volatility transmission is more pronounced in coastal areas than in inland regions. However, no notable distinctions in volatility transmission are discerned between the periods before and throughout the COVID-19 pandemic. Vector autoregression analyses substantiate that lagged carbon price fluctuations possess limited predictive capacity for contemporaneous equity market volatility and vice versa. The robustness of these outcomes is fortified by applying the E-GARCH model, which accounts for the volatility clustering phenomenon. As the first investigation into the volatility spillover effect between China’s emission trading market and corresponding stock markets, this study offers valuable insights into the investment strategies of retail investors, the formulation of carbon regulations by policymakers, and the carbon emission strategies of corporate managers.

Suggested Citation

  • Jinwang Ma & Jingran Feng & Jun Chen & Jianing Zhang, 2024. "Volatility Spillover from Carbon Prices to Stock Prices: Evidence from China’s Carbon Emission Trading Markets," JRFM, MDPI, vol. 17(3), pages 1-24, March.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:3:p:123-:d:1358823
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    References listed on IDEAS

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    Cited by:

    1. Cristiana Tudor & Aura Girlovan & Robert Sova & Javier Sierra & Georgiana Roxana Stancu, 2025. "From Policy to Prices: How Carbon Markets Transmit Shocks Across Energy and Labor Systems," Energies, MDPI, vol. 18(15), pages 1-28, August.
    2. Shen, Ying & Liang, Yanfen & Yang, Mei, 2025. "Research on the spillover effect among China's domestic carbon emission trading markets," Renewable and Sustainable Energy Reviews, Elsevier, vol. 214(C).
    3. He, Junlin & Ng, Kok-Haur & Peiris, Shelton & Allen, David, 2026. "Modelling volatility and return based on a two-stage Log-BiACARR framework and intraday information: Evidence from Guangdong and Hubei carbon emissions trading markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 681(C).

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